Falling rates and rising earnings may be a potent mix for markets

Key takeaways

Rates

Inflation and jobs data point to a likely 25-basis point cut from the Federal Reserve this week; other central banks aren’t expected to make changes.

Revenues

Oracle’s much stronger-than-expected outlook for its cloud revenue over the coming four years led to its stock setting a record for a one-day rise.

Gold

Gold has notched more than 30 new record highs this year, and may be on pace to hit the most new highs in a single calendar year this century.

It’s a big week for central banks. The Federal Reserve (Fed), Bank of Canada (BOC), Norges Bank, Bank of England (BOE), and Bank of Japan (BOJ) are all meeting in that order. In the US, employment data has been softer but not collapsing, and inflation data has been moving higher, but less quickly than feared. That gives the Fed an excuse to put in insurance rate cuts — though we don’t expect a 50-basis point cut like some are forecasting. Elsewhere, we don’t expect other central banks to change policy.

Meanwhile, earnings growth continued, especially in the artificial intelligence (AI) space, which got another boost last week when Oracle forecasted cloud revenue growth of around 1,400% over the next four years.¹

Overall, we believe economic and earnings data continue to point to a Goldilocks backdrop for risk assets.

Fed all but guaranteed to cut 

US Consumer Price Index (CPI) inflation came in mostly in line with consensus forecasts on Friday. Core CPI rose 0.3% month-over-month, while the headline figure rose 0.4% month-over-month, a touch above Bloomberg’s consensus estimate.² Earlier in the week, Producer Price Indexes showed input prices rising less quickly than estimates.³

Within the CPI data, there were some notable sectors. Fruit and vegetables rose by 1.6% over the month, while airfares were 5.9% higher in August after rising 4% in July. Shelter inflation rose 0.4% month-over-month. Elsewhere, though, household furnishings and video and audio products, goods that tend to be imported and thus subject to tariffs, rose more slowly than in recent months.⁴

While the CPI data clearly showed that inflation is running above the Fed’s target, we believe it isn’t strong enough to stop the Fed from cutting its policy rate on Wednesday. The Federal Open Market Committee (FOMC) is likely to prioritize the recent weaker labor market data — weekly jobless claims hit their highest mark in nearly four years last week.⁵ Also, the quarterly review of Bureau of Labor Statistics (BLS) data indicated that more than 900,000 fewer jobs were created from the beginning of the year through the end of March.⁶ While that isn’t good news for growth, it does still point to a job market that’s seeing neither hiring nor firing to any great degree.

This week’s FOMC meeting will be fascinating. Will any member vote for a 50-basis-point cut? Probably. What will the Summary of Economic Projections say about how the FOMC sees the economy unfolding in the coming months? The unemployment rate at the end of the year could still be below the rate that the FOMC forecasted in June. It could be that there’s very little change in their forecasts.

Who’ll even be in the room? After being approved by the Senate Banking Committee on Thursday in a 13-11 vote along party lines, Stephen Miran moved one step closer to filling the FOMC seat vacated by Adriana Kugle. A Senate vote is due to be held today (Monday). If approved, which we think is likely, Miran should sit at Wednesday’s meeting. Currently, Lisa Cook also has a seat, but the US Justice Department has appealed to the Federal Appeals Court to prevent her from continuing to serve on the FOMC.

The simple market takeaway, however, is that rate cuts into a soft landing — the most likely outcome now, in our view — could be very bullish for stocks.

Other central banks are likely to hold

While the Fed is highly likely to cut its policy rate this week, the European Central Bank (ECB) held rates steady last week. ECB President Christine Lagarde stressed that policy appears to be in a good place and the disinflationary process appears to be over. The market took her comments as somewhat hawkish. Market pricing currently suggests no more cuts before next summer.

UK gross domestic product data pointed to no growth in August, with the quarter-over-quarter rate slipping from 0.3% to 0.2%.⁷ But with inflation still above target, the BOE isn’t likely to make any changes to policy rates when it meets this week.

The BOJ isn’t expected to hike rates this week. Tariff uncertainty in Japan has been reduced recently, and while exports have slowed, they remain relatively healthy. Inflation remains well above target.

Markets surprised by Oracle’s revenue outlook

Those anticipating a slowdown in the AI narrative were sorely disappointed last week after Oracle revealed a much stronger-than-expected outlook for its cloud revenue over the coming four years. The company projected cloud infrastructure revenue to hit $144 billion by fiscal 2030, up from $10 billion in fiscal year 2025.⁸

Oracle’s stock rose more than 45% during Wednesday’s trading session before closing more than 35% higher than the previous day, helping the S&P 500 hit another record high for the year. No company with a valuation greater than $500 billion has ever risen more than 25% in a single session.⁹ That a company as liquid as Oracle moved as it did highlights just how large this revenue forecast surprise was and suggests that the bull case for the AI narrative may still not be fully priced.

The stock surge briefly elevated Oracle co-founder Larry Ellison to the position of the world’s richest person, according to Bloomberg’s Billionaire Index.¹⁰

Gold shone even brighter

Our obligatory comment on gold this week is to point out that it continued to make new highs. In fact, it has already notched more than 30 new record highs this year, putting it on pace to potentially exceed the 41 record highs set in 2024.¹¹

Assuming prices continued to rise through year-end, 2025 could mark the most new highs for gold in a single calendar year this century. Adding to its record-breaking year, gold reached a new inflation-adjusted high last week, surpassing the previous peak from January 1980¹² — a testament to its enduring appeal as a store of value.

What to watch this week

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Originally Posted September 15, 2025

Falling rates and rising earnings may be a potent mix for markets by Invesco US

Footnotes

• Source: Oracle Corporation, Sept. 10, 2025, based on Form 10-Q for the quarter ended August 31, 2025.
• Source: Bureau of Labor Statistics, Sept. 11, 2025.
• Source: Bureau of Labor Statistics, Sept. 10, 2025.
• Source: Bureau of Labor Statistics, Sept. 11, 2025.
• Source: Department of Labor, Sept. 11, 2025, based on initial jobless claims for the week ended Sept. 6, 2025. 
• Source: Bureau of Labor Statistics, Sept. 9, 2025, based on the annual preliminary benchmark revision to US payroll data for the period from April 2024–March 2025.
• Source: UK Office of National Statistics, Sept. 12, 2025.
• Source: Oracle Corporation, Sept. 10, 2025, based on Form 10-Q for the quarter ended Aug. 31, 2025.
• Source: Dow Jones Market Watch, Sept. 10, 2025.
• Source: Bloomberg L.P., Sept. 10, 2025.
• Source: Bloomberg L.P., Sept. 8, 2025.
• Source: Bloomberg L.P., Sept. 11, 2025.

Important information

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Image: Pgiam / Getty

All investing involves risk, including the risk of loss. 

Past performance does not guarantee future results. 

Investments cannot be made directly in an index. 

There is no guarantee forecasts will come to pass.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. 

A basis point is one-hundredth of a percentage point.

The Consumer Price Index (CPI) measures the change in consumer prices and is a commonly cited measure of inflation.

Disinflation, a slowing in the rate of price inflation, describes instances when the inflation rate has reduced marginally over the short term.

The Federal Open Market Committee (FOMC) is a committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.

Fluctuations in the price of gold and precious metals may affect the profitability of companies in the gold and precious metals sector. Changes in the political or economic conditions of countries where companies in the gold and precious metals sector are located may have a direct effect on the price of gold and precious metals.

Gross domestic product (GDP) is a broad indicator of a region’s economic activity, measuring the monetary value of all the finished goods and services produced in that region over a specified period of time.

Hawkish describes a central bank or policymaker’s preference for a tighter monetary policy, typically to combat inflation.

Inflation is the rate at which the general price level for goods and services is increasing.

Monetary easing refers to the lowering of interest rates and deposit ratios by central banks. A risk asset is generally described as any financial security or instrument that carries risk and is likely to fluctuate in price.

A spot price is the current market price at which an asset is bought or sold for immediate payment and delivery.

A policy rate is the rate used by central banks to implement or signal their monetary policy stance.

The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.

The yield curve plots interest rates at a set point of time for bonds of equal credit quality but differing maturity dates in order to project future interest rate changes and economic activity.

In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic, and political conditions.

The opinions referenced above are those of the author as of Sept. 12, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.